One Policy to Stop Climate Catastrophe

Markets made this blog possible. Markets allow activists to travel easily and cheaply to Marrakech. Markets give us light and heat. They put food on our tables. It was markets that lifted a billion chinese people from abject poverty, and markets that put mobile phones in the hands of most Africans. Markets have done far, far more to improve the lot of humanity than any government, NGO, or other organisation. Railing against them just illustrates rigid ideology and makes one automatically irrelevant to any serious discussion. In the struggle to solve the biggest and most important problem of our time (or of any time, for that matter), ‘market denial’ is as toxic to progress as climate denial.

The cost of this isn’t included in the price of heating oil, electricity, food, travel…

The market is the ONLY mechanism that can make our entire energy system sustainable in the short time we have left without inflicting horrific misery on billions of human beings. And it only needs one thing – a realistic price on carbon. If the real costs of climate change are included in the price of carbon, then the market will take care of the rest. If the price of carbon reflected its actual cost, then every single product and every single service that used carbon would be much, much more expensive, and every single product and every single service that didn’t use carbon would be, in relative terms, much, much cheaper. Just internalising the real cost of carbon into its price would cause market and human activity to flow from the carbon-based to the non-carbon based.

There are three ways that the cost of carbon can be internalised into its price:

(1) The first is the direct taxation of carbon, with the proceeds flowing to the government (like cigarette taxes). This would make every thing that contained carbon – light, heat, travel, food, etc., etc. – much more expensive, with terrible human consequences. Of course, government could use this money to help those badly affected, but that would be most people. And, of course, the vast bureaucracy of means-testers, scheme administrators and other controllers would be very expensive. Economic power would flow from people to government as people found themselves facing crushingly higher prices and mountains of forms to fill in for handouts to help them cope. For these reasons this option is not politically possible in a democracy.

(2) The second way to internalise the costs of carbon is through Cap and Trade, also known as Emissions Trading – what we have now. This involves government setting a cap on carbon use, then letting the market buy and sell pollution permits and offsetting credits. This method worked to reduce the sulphur emissions that caused acid rain and the CFCs that caused ozone layer depletion because there were only a few big players in those markets. But it doesn’t work in the much bigger market for carbon in which we are all involved.

It’s OK – they bought some credits from a tree farm in Moldova.

In reality, Cap & Trade rewards the heaviest polluters (who get more carbon permits), transfers pollution to jurisdictions with weak measurement and enforcement, and creates perverse incentives (don’t reduce emissions because then you’ll get fewer permits in the future). It even causes carbon emissions, with extra carbon being emitted solely for the purpose of gaining permits, which can then be sold. It raises costs for consumers and small business (who aren’t part of the market for permits), and transfers money from consumers and small business to big business. The ‘cap’ is set largely out of sight, so big business influence is considerable.

Pope Francis summed up Cap & Trade well in his encyclical on the environment: “The strategy of buying and selling ‘carbon credits’ can lead to a new form of speculation which would not help reduce the emission of polluting gases worldwide. This system seems to provide a quick and easy solution under the guise of a certain commitment to the environment, but in no way does it allow for the radical change which present circumstances require. Rather, it may simply become a ploy which permits maintaining the excessive consumption of some countries and sectors.”

(3) The third way to put a price on carbon is through carbon Fee and Dividend. This is ‘revenue-neutral’ carbon taxation in which all proceeds are distributed equally to everyone. Everybody’s costs go up, but everybody also gets a cheque in the post. If you use less than the median level of carbon then your cheque will be bigger than your extra costs and you’ll come out ahead. If you use more than the median level of carbon then your cheque will not cover your extra costs and you’ll lose out. Under Fee and Dividend two thirds of people would come out ahead, making a real, serious price on carbon politically realistic. Money would flow from heavy polluters to light polluters.

James Hansen supports Fee and Dividend. The US Green Party supports Fee and Dividend. Elon Musk (who has used the market to do more to reduce emissions than all the climate activists put together) supports Fee and Dividend. The Democratic Party legislature of California supports Fee and Dividend. On the other side of the ideological spectrum Exxon supports Fee and Dividend, dozens of non-denying GOP congressmen and senators support Fee and Dividend, and many other big business people and corporations support Fee and Dividend.

The red line is 2016. Something significant has clearly changed this year.

It may already be too late. Three days ago the temperature at the North Pole was 20C above normal, and in the depths of the arctic winter night the ice is still melting. Ice coverage data from the last two months suggest we may have already reached a tipping point (see image below). If we do still have a chance then it is not through big, bloated, controlling, bureaucratic, wasteful, out-of-touch government directly controlling people’s incomes and energy usage like some sort of God or emperor of old – nobody will vote for that. And, as has been amply proven, it won’t be through big corporations wheeling, dealing and speculation in pollution permits issued in the dark by heavily lobbied government, as we have now.

Fee and Dividend puts a real, high, serious price on carbon while making 2/3 of people richer. It is politically possible, viable and realistic – a policy that Exxon and the US Green Party agree on. It establishes the idea that polluters should pay and the polluted should receive. It has rock solid economic, philosophical and moral foundations. It gives power, choices and freedom to people, and not to fat, out-of-touch governments or greedy, shortsighted corporations. It can provide the foundation for a basic income. It can be implemented gradually, in any tax jurisdiction, and can be expanded internationally.

Complaining, whining and criticising does nothing for anybody – if you’re not FOR something then you’re part of the problem. No solution to carbon emissions will work without a real price on carbon. Direct carbon taxation at any meaningful level is highly regressive and thus not politically possible. Cap and Trade has been tried and shown not to work at anything near what’s needed.